Fitch: Spanish savings banks valuations show up loan problems

By: Patrick Blum | 30 Sep 2011

The Spanish Fund for Orderly Bank Restructuring’s (FROB) decision to take as much as 90% to 100% of the equity of three savings banks, known as cajas, in return for capital injections highlights the size of potential losses on these banks’ loan portfolios, Fitch Ratings said on Friday.

The FROB has taken a 93.2% stake on Novacaixagalicia, 90% of Catalunyacaixa and 100% of Unnim in return for making capital injections, effectively ensuring the banks’ survival. These equity participations reflect lower values than Bankia and Banca Civica achieved when they undertook their IPOs, Fitch said.

The agency said there will be limited opportunity for these cajas to generate extra capital internally, given the expected low interest rate environment, higher funding costs and the tough competition, all of which would put pressure on the banks’ income.

Bankia successfully raised about €3.1bn of capital in July and this was seen as a positive achievement in the authorities in efforts to overcome the crisis shaking the country’s saving banks sector.

The FROB announced its valuations for the three cajas as the conclusion to the bank recapitalisation programme that began in March. The programme applied to all Spanish financial institutions, including banks, cajas and credit cooperatives, and required them to hold a minimum core capital ratio of 8%. This requirement was raised to 10% for institutions with less than 20% of share capital either owned by private investors or listed on the stock exchange and with the proportion of wholesale funding greater than 20%.

Two other savings banks, the Banco Mare Nostrum group and Liberbank, were given 25-day extensions to formalise their expected private capital injections, CAM is in the process of being sold by FROB and the remaining financial institutions satisfied the new rules.

The six months since the parliament approved the banks’ recapitalisation have seen the conversion into commercial banks of virtually all savings banks (with up to 98.3% of the sector’s assets), the Bank of Spain said in a statement marking the end of the programme.

“The merit of this recapitalisation process is all the greater for having been undertaken in the most difficult of international settings, owing to the tensions experienced in recent months on financial markets,” the bank said.